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TMI Blog2016 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... y demand raised by the Official Liquidator, the same shall be returned back by them to the Official Liquidator at prevailing rate of interest. X X X X Extracts X X X X X X X X Extracts X X X X ..... hmedabad 31.08.2010 Passed in 'OLR No. 81 of 2010` 6.00 Crores The purchaser namely M/s. Manibhadra Sales Corporation has paid full payment 6. Official Liquidator thereafter invited the claims of the secured creditors and the workers of the company under Section 529 and 529A of the Companies Act of 1956 by issuing advertisement in one English Daily and one Gujarat Daily Newspapers, both in Ahmedabad editions on 03.12.2010. In pursuance to the aforesaid advertisement, Official Liquidator received claims from the secured creditors and workers Union of the company in liquidation. Thereafter, Official Liquidator appointed M/s.J.M.Parikh and Associates, Chartered Accountant for the purpose of verification and examination of the claim submitted by the secured creditors and the workers of the company. The aforesaid Chartered Accountant submitted verification report after considering the claims submitted by the secured creditors as well as workers. Said report was submitted before this Court by Official Liquidator by filing Company Application No.268 of 2011. This Court passed an order on 17.08.2011 and 19.09.2011 in the aforesaid application, whereby, the Official Liquidator was direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Liquidator filed Official Liquidator Report No.28 of 2012, wherein, the details with regard to the claims received from the creditors were also given. The Official Liquidator also sought permission to avail services of Chartered Accountant viz. M/s.J.M.Parikh and Associates for verification of claims of the creditors received under Section 530 of the Companies Act. This Court by order dated 28.02.2012 permitted the Official Liquidator to avail services of Chartered Accountant. The claims were sent to the said Chartered Accountant for the purpose of verification under Section 530 of the Companies Act. Said Chartered Accountant filed the verification report on 22.03.2012. The said report was also sent to the creditors for their consent and acceptance of the report of the said Chartered Accountant. IDBI Bank and Indian Bank have accepted the recommendation of the Chartered Accountant. However, the Central Excise Department, Ahmedabad Municipal Corporation and Lloyds Finance Limited have raised objection, regarding verification of their claim and distribution of ratio. Official Liquidator therefore sent copies of the objection letters received from the aforesaid authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipal Corporation 15,00,387 Total 15,01,387 After paying these dues, the unsecured creditors may be distributed their claims as per the following table: Sr No. Name of the Party Outstanding Dues (Rs.) Dues Covered u/s 530 (Rs.) Unsecured Creditors % 1 Excise Department 9,79,97,446 1000 9,79,96,446 59.66 2 Ahmedabad Municipal Corporation 19,93,149 15,00,387 4,92,762 1.33 3 Uttar Gujarat Vij Company Limited 4,43,124 NIL 20,44,253 0.27 4 Sun on peak Hotel Private Limited 20,44,253 Nil 20,44,253 1.24 5 Inductotherm(India) Limited 4,35,639 NIL 4,35,639 0.26 6 Lloyds Finance Limited 30,66,131 NIL 30,66,131 1.87 7 Indian Bank 1,43,75,238 NIL 1,43,75,238 8.75 8 IDBI Bank 4,32,91,635 NIL 4,32,91,635 26.36 9 Workers 4,28,000 NIL 4,28,000 0.26 Total 16,40,74,615 15,01,387 16,25,73,228 100 10. At this stage, learned counsel Mr.Yadav submitted that the Official Liquidator had not received the claim from Income Tax Department in pursuance to the advertisement issued in the newspaper. The Official Liquidator therefore requested M/s.Kiran Shah and Associates, Chartered Accountant, to inform the income tax liability/capital gain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation of Chartered Accountant is not correct and in violation of provisions of the Excise Act and the Rules framed thereunder. While calculating the ratio, Chartered Accountant has wrongly held that excise duty debt which become due between period 25.01.2000 to 24.01.2001 shall be considered and treated as preferential debt under Section 530 of the Companies Act. He further committed an error by holding that liability to pay the excise duty as accrued on the date on which the order in original was issued to the company in liquidation and accordingly by applying the relevant debt to be date of issue of order in original, the excise department is entitled to claim only ₹ 1000/in the category of preferential creditor under Section 530 of the Companies Act. Learned counsel further submitted that Chartered Accountant also committed an error in rejecting the claim of Excise Duty, penalty and interest submitted by affidavit of debt dated 30.10.2003, 27.12.2002 and 17.02.2003 without looking into the relevant material and evidence. Learned counsel further contended that Chartered Accountant has wrongly ignored Section 11E of the Central Excise Act under the said provision, amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section provides for first charge on the property of the assessee or the person and sum payable by such assessee being amount of duty, penalty, interest is having preference over all dues which might have prescribed in any Central Act or State Act except the sum payable as provided in Section 529A of the Companies Act, 1956 Recovery of debts due to Banks and Financial Institutions Act of 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2003. Learned Senior counsel contended that the department is not disputing preferential claim of workers. However, claim of the Bank cannot be treated to be preferential claim unless and until recovery of amount due is sought to be recovered under the provisions of Recovery of Debts due to Banks and Financial Institutes Act of 1993. He further contended that claim of municipal corporation and proposal to make payment of Incometax Department in preference to claim of answering respondent has also not capable of being considered in preference in view of Section 11E of Central Excise Act, 1944. 15. In support of his contention, learned counsel has placed reliance upon the decision rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst charge had been created in favour of the State by Section 26B which was inserted in the Kerala Act with effect from 01.04.1999 and the Courts below did not commit any error by refusing to decree the suit for injunction filed by the Bank." 17. On the other hand, learned advocate Mr.B.H.Bhagat appearing for IDBI Bank Limited submitted that the judges summons taken out by IDBI Bank Limited by filing Company Application No.281 of 2014 be allowed. Learned advocate Mr.Bhagat referred to the Official Liquidator's report and submitted that as per the direction issued by this Court from time to time, the property of the company in liquidation has been disposed of. Amount is lying before the Official Liquidator. The Official Liquidator disbursed the amount under Sections 529 and 529A of the Companies Act, 1956 and therefore now the remaining amount of ₹ 5.5 Crores with interest may be disbursed under Section 530 of ies Act. 18. In response to the Official Liquidator's Report No.12 of 2015 and in response to the arguments canvassed on behalf of learned Senior Counsel Mr.Oza for Central Excise Department, learned advocate Mr.B.H.Bhagat submitted that incometax dues cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and to file returns are concerned, it is relevant to mention that the liquidator, in his report being OLR No.35/2012, has averred in paragraph No.13 that "before passing any orders of disbursement, this Hon'ble Court may be pleased to hear the respondent No.2 i.e. Commissioner of Income Tax, Range 4, Ahmedabad in this matter". The request made by the Department and the submission made by the Official Liquidator are in consonance with the obligation imposed by virtue of section 178 of Income Tax Act and that, therefore, appropriate intimation to the Department in each case when order appointing liquidator is passed and when the process for disposal of assets and/or disbursement of sale consideration received by liquidator begins, ought to be given to the concerned authority / officer of the Department. 31. On this count it is relevant to mention that this Court is given to understand that so as facilitate this process, the Department has nominated one officer as Nodal Officer who may be informed about the appointment of liquidator and/or about the process of sale of properties or about disbursement of sale proceeds. In this view of the matter, it appears appropriate to direct, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Official Liquidator from the sale of factory premises (movable and immovable) of the company in liquidation situated at plot No.106, 107 and 108, GIDC, Chhatral, whereas, ₹ 6 Crores have been received from the sale of factory premises including (movable and immovable) properties of the company in liquidation, situated at Plot No.47, GIDC, PhaseI, Vatva. B. Official Liquidator disbursed an amount of ₹ 5.11 Crores received from the sale of movable and immovable properties of Chhatral unit of the company in liquidation under Section 529 and 529A of the Companies Act, 1956 between Indian Bank, IDBI Bank and workers. C. Now the dispute is with regard to disbursement of ₹ 6 Crores received from the sale of property of the company in liquidation, situated at Vatva unit. D. Out of ₹ 6 Crores, ₹ 50,64,000/fetched from the sale of the movable property of Vatva unit has been disbursed to IDBI Bank limited because the said bank is having exclusive charge of the said movable property. Undertaking was obtained from IDBI Bank by the Official Liquidator. E. So far as remaining amount of ₹ 5,49,36,000/is concerned, the said amount is fetched from sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Central Excise Act of 1944 and Rules 7 and 9 of Central Excise Rules of 1944. The relevant part of Section 3 reads as under: "3. DUTIES SPECIFIED IN THE [SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT, 1985] TO BE LEVIED.( 1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods [which are produced or manufactured in India] as, and at the rates, set forth in the [Schedule to the Central Excise Tariff Act, 1985] [Provided that the duties of excise which shall be levied and collected on any [excisable goods which are produced or manufactured (i) in a free trade zone and brought to any other place in India; or (ii) by a hundred percent exportoriented undertaking and allowed to be sold in India, shall be an amount equal to;] the aggregate of the duties of customs which would be leviable under Sec. 12 of the Customs Act, 1962 on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provisions of this Act, be determined in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or warehouse duly approved, appointed or [registered] by him keep with any person dealing in such goods an accountcurrent of the duties payable thereon and such account shall be settled at intervals, not exceeding one month, and the account holder shall periodically make deposit therein sufficient in the opinion of the [Commissioner] to cover the duty due on the goods intended to be removed from the place of production, curing, manufacturer or storage. [1A] Where a person keeping an accountcurrent under the third proviso to subrule (1) makes an application to the [Commissioner] for withdrawing an amount from such accountcurrent, the [Commissioner] may, for reasons to be recorded in writing, permit such person to withdraw the amount in accordance with such procedure as the [Commissioner] may specify in this behalf.] (2) If any excisable goods are, in contravention of subrule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made [within the period specified in Sec. 11A] of the Act by the proper officer, whether such demand is delivered personally to him or is left ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid in priority to all other debts subject to provisions of Section 529A of the Companies Act. 27. As per clause (c) of subsection 8 of Section 530, the relevant date means: "(c) the expression "the relevant date" means (i) in the case of a company ordered to be wound up compulsorily the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date; and" 28. Thus, the words "due and payable" are relevant words which are required to be considered. In the present case, concerned Chartered Accountant has specifically stated that raising of demand by Excise Department which is contested by the assessee cannot be treated as debt which has become due and payable. The excise duty becomes due and payable only when the adjudication order is passed in favour of the Department. The debt becomes due and payable on the date of the order. In the opinion of this Court the opinion given by the Chartered Account is correct. Thus, this Court is of the opinion that the debt becomes due and payable only on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (51 of 2002), be the first charge on the property of the assessee or the person, as the case may be." 32. As per Section 11E of the Central Excise Act, an amount of duty, penalty, interest, etc. payable by an assessee under the said Act and the Rules made thereunder shall be the first charge on the property of the assessee or the person, as the case may be, but the same is subject to Section 529A of the Companies Act and under the provisions of other two Acts as mentioned in the said Section. Section 529A of the Companies Act provides that: "529A. Overriding Preferential Payments (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company ( a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to subsection (1) of section 529 pari passu with su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 530, there is no escape from this conclusion, and we must, therefore, hold that the High Court was right its its decision." Thus, it is clear that Section 530 of the Companies Act, in clear terms, provides that in a winding up, in priority to all other debts all revenues taxes, cesses, etc. shall be paid but subject to provisions of Section 529A of the Companies Act. Thus, the Companies Act, 1956 does not treat the revenue taxes as liquidation expenses and from aforesaid two Sections it is clear that the liability towards workmen's dues and debts due to secured creditors as provided under Section 529A(1)(b) has to be paid in priority to all other debts including tax dues to the Revenue. 37. There is no dispute with regard to the ratio laid down by the Hon'ble Supreme Court in the case of Shree Synthetics Ltd. (Supra) as well as in case of Wallace Flour Mills Company Ltd. (Supra). In the said cases, Hon'ble Supreme Court held that even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later stage for administrative convenience. However, the words "due and payable" as well as "relevant date" use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion canvassed by learned advocate Mr. Yadav for the Official Liquidator seems to be genuine. When the dispute is pending before the Hon'ble Supreme Court with regard to incometax liability, at this stage, amount of ₹ 3,32,00,000/towards the future expenses and ₹ 3,03,637/towards misc. expenses (contingent) is required to be kept aside and the remaining amount of ₹ 3,22,55,000/is required to be disbursed amongst the creditors under Section 530 of the Companies Act as per the report of the Chartered Accountant and as per the table given in para 6 on internal page 16 of the report. The Official Liquidator is therefore permitted to disburse an amount of ₹ 3,22,55,000/as per the ratio fixed by the Chartered Accountant subject to filing an undertaking by the concerned creditors (secured/unsecured) to the effect that if any demand raised by the Official Liquidator, the same shall be returned back by them to the Official Liquidator at prevailing rate of interest. 41. With these observations and directions O.L.R. No.12 of 2015 and Company Application No.281 of 2014 are disposed of accordingly. 42. Parties are at liberty to move an application/file report befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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